Debt Recovery Agency v’s Small Claims Court

Most people know that when chasing a debt, the options include debt recovery agencies, or taking the debtor through the small claims court and trying to get a judgment ruled against them to force payment. But which is the best option for you? You might not immediately know which debt collection method you should use, or which is the best first course of action to get your money back as quickly as possible. Let’s see if we can help.

Many think that debt collection is only an option once you have a court judgment against the debtor – but this is not the case and often not the most effective path to take, it can turn quite hostile as well.

A court ruling can still be very difficult to enforce, and you may need to go back to court for a further judge ruling against the debtor, before you can send bailiffs to remove possessions, or have the courts award you a share of the debtor’s future income to repay the debt, and so on.


But while people often talk about debt collection in the context of bailiffs, in fact a debt recovery agency can help you to get what you are owed without needing to send bailiffs round, and often without needing to go to court at all.

In many cases we see introducing a debt recovery agency as being a very fast way to resolve the debt, as we take all emotion out of the situation and offer a calm and caring approach to the debtor (to a point anyway).

Why debt recovery should come first

Chasing a debt should be a logical process, starting with the cheapest, fastest and easiest methods to encourage payment, such as debt recovery agencies, and only later progressing to the more costly and time-consuming options like going to court.

You don’t need a court judgment against the debtor to appoint a debt recovery agency to the case – quite the opposite, in fact.

A debt recovery agency will first and foremost look at all of the details of the payment, any terms and conditions you issued to the debtor, the information on the invoice and so on. They give you a crucial first opinion on whether you are realistically likely to recover the debt.

Debt recovery agencies will also help you to track down debtors who you have lost contact with, using a variety of tracing methods to relocate them and remind them that the debt is still due to be paid.

The key thing here is the debt recovery agency will act on your behalf to calmly and professionally encourage payment from the debtor, they will also be able to switch up a gear if the nice approach doesn’t work and a demand becomes the better option. If this approach fails (unlikely) you still have the option of going down the small claims court route.

What do debt recovery letters say?

It’s important to get debt recovery letters right, so that the debtor has no excuse for not paying – and we’ll come on to why this is even more important in a moment.

Each letter should clearly state the debt that is due to be paid, and when it was originally due – don’t give any suggestion that the deadline has been extended unless you are absolutely certain that you want to do so, as this will give the debtor even more ‘wriggle room’ to argue that they didn’t think they had to pay you yet.

Debt recovery agencies can add extra charges to the amount owed, including statutory interest, a fixed fee based on the size of the debt, and in recent years they can also add the cost of debt recovery to the amount owed to you, so that you don’t have to pay it out of your own pocket.

In practice, you might not always get paid these extras, as many debtors will quickly pay the original amount in order to avoid paying the penalties on top, but they work well to encourage prompt payment of overdue invoices, and it’s still worth getting as much as you can back in a short space of time.

A formal debt recovery letter will also typically threaten a future course of action if the debtor does not pay what they owe, and this can include taking the debtor to small claims court (see below) or even petitioning the court to have them declared personally bankrupt or to liquidate their company.

When to go to small claims court

We mentioned above that it’s crucial to get formal debt recovery letters right, and that they may threaten the debtor with small claims court action if they do not pay, and this is why a debt recovery agency is the first option, followed by small claims court second.

If after all of the threats and second chances, the debtor still refuses to pay you what they legally owe you, then you can still go to small claims court – there is a fee for this, which has increased quite a lot in recent years, which is partly why it’s a good idea to try private debt recovery first to get your money back without paying for a court claim.

But if all else fails, you can ask a judge to rule in your favour and force the debtor to pay. As mentioned above, if the debtor still does not pay, you can return to court again to ask a judge to grant you part of the debtor’s future earnings until the debt is cleared, or to send bailiffs round to remove goods to the value of the debt.

A court case is your chance to force the debtor into bankruptcy or company liquidation, but it’s often not worth aiming for this from the outset – the important thing is to get your money back quickly and in full, not to seek revenge for the sake of it.

Do I have a case?

If you start with the help of a debt recovery agency, then you can get an honest opinion of how strong your case is, both for debt collection via direct contact with the debtor, and if that fails, through the small claims court.

You can hand the process over to a debt collector, which means that you don’t have to spend your own time and effort on it anymore, and can mostly sit back and wait for the money to arrive.

A reputable debt recovery agency will often offer a no-win, no-fee deal, so you will not end up paying out more than you get back, and can also look at your terms and conditions of payment and the invoice sent to the debtor and advise you of any discrepancies that could undermine your case.

Importantly, as mentioned above, a reputable debt recovery firm will make sure any letters and phone calls to the debtor are worded appropriately, so as not to undermine your case or risk any legitimate claim of harassment. You should never try to recover a debt via social media.

When the debtor still refuses to pay, your debt recovery agent can advise on going to court or making a small claim without having to physically attend court – there are online services available to do this, and they may save you time and money while still getting you what you are owed.

In all cases, a debt recovery agent will work diligently to chase down the debtor and pursue all legal leads to get your money back, and in the vast majority of cases you will end up receiving a significant amount of what you are owed, including where possible extra interest and fees on top of the original sum.

Get debt recovery started quickly

A final word of warning on debts that are already several years old, and especially where you have lost contact with the debtor.

In most cases, if you do not chase a debt for a period of six years, either from when it became due, or from the last time you contacted the debtor to demand payment, then it becomes statute-barred, meaning you have no legal right to chase for payment in the future years.

You can still ask for payment of debts over six years old, but you most likely have no actual legal right to the payment if the debtor simply refuses to send you the money.

However, you can avoid hitting this deadline by making sure you send a formal, recorded attempt to recover the debt, which you can prove the debtor received.

For this reason, it is absolutely imperative that you appoint a debt recovery agent to trace the debtor and make appropriate, recorded contact with them before the six-year deadline is reached.

Aged debts can be very lucrative if you are successful in charging statutory interest on top of the original amount, as this can be a substantial sum over the course of several years, and again serves as a powerful bargaining chip if you offer to waive the interest in return for prompt settlement of the debt.

Of course, it is always desirable to be paid in full as quickly as possible, for the sake of maintaining healthy cash flow over the long term, so you should always appoint a debt recovery firm to handle your case as early as possible.

If you want even more confidence over the long term, appoint a firm to handle your credit control from start to finish, and all of your invoices will be issued promptly, and followed up with appropriate debt recovery action if they are not paid on time.

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